· The market rally (with the S&P up +28% in 2009 and +5% in 1Q10) is shifting flows from fixed income into equities. Equity funds have higher yields so this trend will boost revenues for equity managers.

By tracking returns and flows on each of the funds offered by each manager we can estimate inflows and market returns on the companies’ AUMs before they are reported. Our tracking models include the following and are adjusted by asset class to reflect 100% of each asset class:

· TROW: we track 110 funds representing 98% of mutual fund assets. Other portfolios (40% of assets) mimic the returns of equity funds.

· BEN: we track 513 funds representing 73% of total AUM.

· WDR: we track 68 funds representing 96% of mutual fund assets. Institutional accounts (11% of assets) mimic the returns of portfolios in advisor accounts.

· JNS: we track 125 funds representing 91% of mutual fund assets. Separate accounts (30% of assets) mimic returns of mutual fund portfolios.

· Flows should relocate towards equities (a shift that’s beginning to show) as equities typically capture the majority of flows. The financial crisis increased investors’ risk aversion, causing them to shift flows toward fixed income funds. Increases in inflation will reinforce the trend, boosting equity managers’ revenues.  

· Advisors are also planning to shift client assets back to equities during 2010 according to a survey by Russell Investments.

· The increase in flows to target date funds will also increase allocations towards equities, as target date funds invest the majority of their assets in equities and modify their allocation towards fixed income instruments as they mature. The target date fund industry is dominated by Fidelity (38.73% market share), Vanguard (22.06%) and T.Rowe Price (16.41%).

· The deficit of US Defined Benefit pension plans ($256 bn at the end of February) will require sponsoring companies to increase their allocation to equities (seeking higher yields) or increase contributions (or a combination of both). The trend will benefit institutional equity managers like TROW, AMG and IVZ.

· Money Market funds continue to lose funds as low yields and regulatory overhang continue to put pressure on the sector

· ETFs continue to grow, competing with traditional funds for assets, particularly those of institutions.

Provided By: Equity Research Desk www.erdesk.com